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Minyanville's T3 Morning Market Call: Can Earnings Season Rekindle Market Momentum?


The homebuilders remain strong so far thsi year, and so do the banks. Industrials and some agribusiness stocks are acting better.

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Futures point to a higher Wednesday after Alcoa (NYSE:AA) kicked off earnings season with a solid report last night. The market has seen a controlled two-day pullback after its strongest week since December 2011. The S&P (INDEXSP:.INX) was extended a bit off its 8- and 21-day moving average, so it's healthy to see some rest and digestion. With the S&P hovering at its highest levels since the financial crisis, it will be interesting to see how the market handles in-line earnings reports this quarter.

Often times the first couple weeks of action during a year are a harbinger of things to come for that year. Markets that start a year strong historically finish the year that way. We do not trade based on generalizations like that, but it's just an interesting concept to consider and I remain bullish on the market for 2013. Although the market has been very strong since New Year's Eve, it has been a bit of a tricky trade because the majority of the gains happened in the first two days of the year.

If you look at the S&P 500 ETF (NYSEARCA:SPY), you will see the gaps have been protected and the 8-day moving average just played some catch-up. I like to use those short-term moving averages as my judge of composure rather than the banter and headlines. The market will always try to find some negative story to obsess over. The gap pivot support is $144.73, and we've been building a nice floor above that. That level is a nice spot to trade against. Bigger support under that is the 21-day at $143.63. To get back in some motion, we need a micro close above $145.91 then $146.61. If we get above this area, the next pivot resistance is $148.11.

There are lots of themes continuing from last year. The homebuilders (NYSEARCA:XHB) remain strong and so do the banks (NYSEARCA:XLF). Industrials (NYSEARCA:XLI) and some agribusiness (NYSEARCA:MOO) stocks are acting better. Each one of these groups are building a high level consolidation above last year's highs with gaps intact and the 8-day moving average playing catching up.

For the XLF, the sector that has been leading us higher, pivot gap support is $16.74. For the XHB it is $27.12, for the XLI it is $38.51, and for MOO it is $53.54. These groups continue to show relative strength. The Russell 2000 ETF (NYSEARCA:IWM) blasted off on New Year's Day and holds in well, which is a sign of healthy risk appetite and a good sign from a trader's perspective. The small cap index didn't lead much of last year. Pivot support on this index ETF is $86.04. As traders monitor composure/speed/action, all these upside gaps remain intact. We will see if that continues.

In a new year you try to gauge whether money rotates. At this point, nothing is obvious. The Oil Service ETF (NYSEARCA:OIH), Energy ETF (NYSEARCA:XLE), and Nasdaq ETF (NASDAQ:QQQ) are in the middle of last year's range, so I will be watching to see if any of them could play catch-up.

The casinos fell off the radar in second half of last year but have perked up in the early stages of 2013. The Las Vegas Sands (NYSE:LVS) capitulation low on July 26, which was accompanied by monster volume, was a nice spot for strategic long entries. The stock did just clear another channel around $48 and is showing some commitment. Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM) act better and will be on my trading plan more frequently as well. MGM has been moving well since the break out above $11.

Metals held major support areas. Gold (NYSE:GLD) held $158.50; let's see if that continues. This metal is building a huge descending channel and it's either going to resolve it and break above or break big support. I have no interest here yet. An igniting close above $164 could get intermediate-term market participants back.

The Long 20+ Year Treasury Bond ETF (NYSEARCA:TLT) has been weakening over the past month, which could be a sign of money rotation into equities. I have been playing this trend through the Short 20+ Year Treasury Bond ETF (NYSEARCA:TBT). The TBT found resistance at its 200-day moving average, and may need some rest before challenging it again. For momentum to stay with the TBT, in my opinion $64.50-64.60 and the gap should hold.

As we head into earnings, it's that much more important to measure your commitment and time frame.

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Scott Redler is long BAC, FB, YHOO, TBT, GRPN, ZNGA, AAPL. Short SPY.
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